本田技研 (HMC) 2010 Q4 法說會逐字稿

Good morning ladies and gentlemen.

Welcome to Honda's financial results audio presentation.

This is Oshima, manager of Honda Japan Investor Relations.

On April 28, 2010, Honda motor announced its financial result of the fiscal fourth quarter that ended on March 31, 2010.

Through this audio presentation, we would like to summarize the financial result and discuss the major driver of sales and profit for the period.

We would also like to discuss the Company's earning guidance for the fiscal year 2011.

I'd like to let you know that joining me today is Ms.

[Asako Suzuki], General Manager of the Finance Division, and Honda's Investor Relation Officers, [Tsukasa Ito], [Yuki Hatori], [Takomi Suzuki], [Daisuke Kawasaki].

They will be speaking for this audio presentation.

The slide presentation has been posted on the Company website and please click the link on the all new [CLD] for downloading material.

If you are all set, okay folks, let's start.

This audio presentation contains forward looking statements as defined in Section 27a of the Securities Act of 1933 as amended and Section 21e of the Securities Exchange Act of 1934 as amended.

Such statements are based on management's assumptions and beliefs taking into account information currently available to it.

Therefore, please be advised that Honda's actual results could materially differ from those described in these forward looking statements as a result of numerous factors including general economic conditions in Honda's principal markets and foreign exchange rates between the Japanese yen and the US dollar, the euro and other major currencies as well as other factors detailed from time to time.

I would like to now start with the financial summary for the quarter.

Please have a look at slide nine.

The full year summary is stated on slide three for your reference purpose.

Starting with the global economic environment for the quarter, in the US we have seen a consumer spending shaping up to be better than it was and the capital expenditure is in recovery mode.

In European countries, consumer spending remains sluggish.

Economic expansion in China accelerated and the economy in Asia outside Japan continued to grow.

In Japan, moderate recovery in consumer spending continued and the government stimulus program is going on.

In terms of ForEx for the quarter, compared to the same period last year, Japanese yen was JPY91 against the US dollar, JPY3 higher compared to the same period last year.

And euro was JPY125, which was down JPY4 from the same period last year.

Now I'd like to talk about the Motorcycle demand in major countries.

Significant growth of the market continued in India, Indonesia, Thai, Brazil and Vietnam.

On the other hand, there are the continued year-on-year deterioration of the demand in the US motorcycle market.

As to Automobile, industry demand in China, India and Brazil has grown.

On top of this high growth in these emerging markets, demand in Japan boosted centered in passenger vehicle thanks to the government's stimulus programs, and the US light truck -- light vehicle demand also improved significantly.

In Europe, growth of the demand has moderated as the German market was down after the government program expired.

Under such circumstances, Honda achieved better than expected operating profit of JPY96b for the quarter as auto business in North America began the real recovery.

In addition, growth of the business in Asia and in Latin America were enough to compensate the decline in sales in Europe.

Motorcycle unit sales amounted approximately 2.6m unit for the quarter.

Automobile unit sales was slightly below 900,000 units, however, up 28.5% compared to the last year.

Power Product units sales was about 1.6m units.

Fourth quarter financial results as seen in the middle of the slide.

Net income attributable to Honda Motor was JPY72.1b, a significant recovery of JPY252.1b from the same period last year.

And EPS for the quarter was JPY39.78, which is an increase of JPY138.95 from last year.

Revenue total JPY2,279.5b.

Honda achieved a significant recovery of operating income, an increase of JPY368.1b from last year to JPY96b yen.

The income before income tax achieved JPY93.5b which also showed a large increase of JPY392.32b compared to the same period last year.

Equity income of affiliate was JPY23.8b.

For your reference, corporate tax for the period was 41.4%.

Now, I'd like to turn the microphone to Mr.

Kawasaki who will elaborate revenue and the profit analysis.

Thank you.

I'd like to discuss analysis of sales and operating profit for the quarter, please turn to slide 11.

Revenue increased JPY495.6b up to 27.8% from the fourth quarter last year to JPY2,279.5b due mainly to increased unit sales of all business segments.

Change in revenue from last year excluding currency impact could be seen on the slide.

As the exchange rate remained unchanged, revenue have been up 25.4%.

Revenue for the 12 months amounted to JPY8,579.1b, a decrease of 14.3% from the previous fiscal year primarily due to unfavorable currency transactional effects and decreased Automobile unit sales.

Let me elaborate on each factors that affect the operating profit and income before income taxes.

Please turn to slide 13.

Operating income for the fourth quarter totaled JPY96b as you could see at the bottom right hand side of the slide.

It was an increase of JPY368.2b compared to loss of JPY272.1b in the same period last fiscal year.

Income before income taxes amounted to JPY93.5b as shown at the bar on the right side.

It was an increase of JPY392.2b from the same period last fiscal year as seen on the top of the slide.

This chart shows variance how the operating profit was affected by each factor in there.

Let us go through each change factors from left to right.

If you could have a look at the second box from the left hand side, it shows how much gross profit was affected by the change in top-line growth.

Increase of revenue due to increased unit of sales of Motorcycles, Automobiles and Power Products provided the positive impact of JPY143.1b this quarter.

The third box from the left shows a cost reduction.

That also contribute to gross profit changes.

Cost reduction positively impacted this quarter by JPY114.2b due mainly to reduction in vehicle costs by increasing production.

The fourth box from the left demonstrate SG&A impact.

Decreased SG&A expenses provided positive impact of JPY95.6b this quarter.

Honda has achieved significant reduction of expenses in advertising, sales promotion and decreased in provision for major loss.

Decreased R&D expenses provide a positive impact of JPY2b.

The currency had a positive impact of JPY13b.

These are the change factors on the operating income over the first quarter in comparison to the same period last fiscal year.

From here, let me elaborate on pre-tax profit changes compared to the fourth quarter last fiscal year.

There was a variation gain from derivative instrument agreement provide positive impact of JPY36.3b for the quarter.

This mainly associated with foreign currency further agreement.

Other non-operating income under expenses net was a negative JPY12.2b.

Part of this was caused by bias between hedge rate and market rate to book revenue.

Overall currency impact at operating income and pre-tax profit line for the year on year basis was negative JPY11.8b.

It consist of positive JPY13b in operating profit and a negative JPY24.9b in non-operating profit.

Detailed information on currency impact under the evaluation of derivative instruments are available on slide 40 and 41.

For 12 months, each factor that affected the operating profit under income before income taxes, please turn to slide 14.

Operating income for the 12 months totaled JPY363.7b, an increase of 91.8%.

Income before income taxes amounted to JPY336.1b, an increase of 107.9% due primarily to decreased SG&A expenses and R&D expenses and continuing cost reduction efforts despite decreased profit attributable to decreased revenue, unfavorable impact of currency effects and the increase in fixed cost per unit as a result of reduced production.

Now we would like to elaborate on Honda's business performance on each business segment for the first quarter ended March 31, 2010.

I'd like to turn microphone to Mr.

Suzuki.

Now please let me describe Honda's results of Motorcycle business.

Please turn to slide 16 of the presentation material.

Unit sales for the first quarter total 2.602m units, increased by 30% compared to first quarter last year, mainly due to increased sales in Asia.

Motorcycle demand in Asia expanded for the quarter in several countries such as Thailand, Indonesia, Vietnam and India.

Honda's unit sales are also favorable supported by Cub type models and a scooter that are very well accepted throughout Southeast Asian countries.

In other regions, demand in Brazil has also come back to the previous year's level in the fiscal fourth quarter.

PCX, our 125cc scooter model has been introduced in Japan in March 30.

Since the introduction, customers acceptance of this model has been very favorable in Japan and at the end of April 2010 volume of order that we have already got is approximately of the annual sales target of PCX.

Unit sales in North America and Europe still remain quite weak for the quarter.

As for the revenue and operating profit of Motorcycle business, please have a look at slide 17.

Revenue for the quarter amounted to JPY335.1b, increased by 22.1% from the corresponding quarter last year mainly due to increased unit sales and a positive currency translation effect.

Operating income for the quarter totaled JPY28b, increased by JPY30.8b primarily due to the decreased SG&A expenses and the increased revenue.

Operating margin for the quarter was 8.4%.

With that, I will return the microphone to Ms.

Hatori.

Thank you, Mr.

Suzuki.

Now let me elaborate on Automobile business results.

Please have a look at the slide 18 of the presentation material.

Unit sales for the fourth quarter amounted to 874,000 units, an increase of 194,000 unites or 28.5% compared to the fourth quarter last fiscal year.

This increase unit sales was mainly due to sales growth in North America, Asia and Japan.

Sales of light truck models in North America were particularly favorable and we have seen certain signs of automobile demand recovery.

Our inventory level has come down and has remained healthy.

In Asia where we also have enjoyed favorable sales, market has expanded in Thailand and Indonesia in particular due to the economic recovery.

Sales of Freed model contributed to the favorable sales in Asia.

In addition, increased sales of Fit and CR-V in Indonesia and City in Thailand also contributed to this increase in sales.

In China, where market expansion is quite significant, sales of models from [Guangdong] Honda, such as Accord, Odyssey and City were quite strong, together with Dongfeng Honda Civics and CRVs.

Accordingly, we have increased knocked-down component shipment during the quarter reflecting such higher demand.

Please turn to the slide 19.

Revenue for the quarter amounted to JPY1,721.3b for the quarter, which was an increase of 32.3% compared with the fourth quarter last year.

This increase in revenue was mainly due to increased unit sales and positive currency translation effect.

Operating income for the quarter amounted to JPY24b, a significant increase of JPY299.4b from the fourth quarter last year mainly due to revenue increase and decrease in SG&A expenses.

Operating margin for the quarter was 1.4%.

As for the Power Product business, please have a look at slide 20.

Unit sales of Power Products totaled 1.631m units, increased by 100,000 units or 6.5% from the fourth quarter last year.

Sales increase in Asia was quite significant for the quarter.

Government support for agriculture in Thailand, India, Philippines and Vietnam boosted sales of general purpose engines and water pumps.

Demand for water pumps has been increased in India due to water shortage.

European markets have remained quite weak.

On slide 21 shows the revenue and operating income of Power Product and other businesses for the fourth quarter, revenue for the quarter amounted to JPY84.4b, an increase of 6.4% from the corresponding period last year.

This increase in revenue was mainly due to increased unit sales of power products and positive currency translation effect.

Operating loss for the quarter was JPY3.1b, an improvement of JPY8.8b from the fourth quarter last fiscal year.

Decline in SG&A expenses mainly contributed to this improvement in profit.

Ms.

[Asako Suzuki], General Manager of the Finance division is speaking about Honda's business performance of Financial Services business for the fourth quarter next.

Thank you.

Okay, thank you Ms.

Hatori.

Regarding Financial Services business, please see the slide 22.

Revenue for the Financial Services business increased by 6.6% to JPY147.3b associated with increase sales of automobile.

Operating profit also increased JPY47.2b.

Decreasing in provision for both credit losses and the residual losses of off-lease cars were major favorable drivers for this increase.

Operating margin for Financial Services business for the period rose to 32%.

Reviewing sales of Financial Services business in North America, we have achieved very strong results for this year because of consistent conservative operations aimed solely for financing and leasing on sales of our products.

On top of that, recovery of US automobile sales along with decreasing provision of credit losses and the residual losses for off-lease cars helped to boost profit of Financial Services business at American Honda Finance Corporation.

We believe investors still remember on what we have experienced in our Financial Services business for the past two years.

When gas price went up in mid-2008, actually it exceeded over $3 per gallon.

We saw many customers replace their vehicles to downsized models seeking for better fuel economy and it caused deterioration of the pricing of large sized vehicles such as SUV and minivans.

Especially it gave significant negative impacts on the pricing of used vehicle market.

Reflecting such changes in used vehicle market that became weak overall, we experienced consistent increase of losses on residual of off-lease cars and we were obliged to increase in provision for the residual losses.

In 2009, as gas price went down and stabilized, the pricing of used light trucks have been recovering.

Thus amount of provision for residual losses of off-lease cars has been down and became smaller throughout the year.

And another good sign is that as the economy started to recover, we saw an improvement of status of credit losses on 12 months rolling base.

We estimated that total positive impact on the decrease in provision for credit losses and residual losses for the year amounted about JPY70b compared with the previous year.

Moreover, as the financial market is recovering, spreads between debt and corporate bonds narrowed and it helps the Company's funding cost decrease through the year.

Now financial markets are returning to normal status and we expect residual value for used vehicle will stabilize.

Therefore, margin of our Financial Services business centered in the US will be normalized.

Thank you.

Let me now speak about Honda's business performance for the fiscal year and the fourth quarter ended on March 31, 2010 by each geographical segment.

Starting from Japan, please have a look at the slide 24 of the presentation material.

In Japan, revenue decrease by 20.6% to JPY3,305.7b for the fiscal year 2010.

Operating loss for the entire fiscal year was JPY29.1b, a significant improvement in profitability of JPY132.4b due to decreased SG&A expenses and continuous cost reduction effort, which more than offset decreased revenue and negative currency effect caused by the appreciated Japanese yen.

Revenue for the fourth quarter amounted to JPY894.3b, increased by 20.8% from the corresponding period last year.

Increased export sales mainly contributed to this increase in revenue.

Operating loss for the fourth quarter this year was JPY8.7b, which was an improvement of JPY167.3b in profit from the corresponding period last year.

This improvement in profit mainly came from decreased SG&A expenses, increased revenue and less fixed cost per unit due to increase in production.

Operating margin for the quarter was minus 1%.

In Japan, we have introduced CR-Z, a sport hybrid vehicle in February 2010.

Customers' acceptance of this vehicle has been extremely well since the introduction.

Sales of Stepwagon, which was fully remodeled in October 2009, significantly increased from the fourth quarter last year, partially due to the government subsidies in tax reduction for eco-friendly vehicle purchases.

Sales of Insight, Fit and Freed have been very favorable particularly in the latter half of the fiscal year.

Concerning North America, please have a look at the slide 25.

Revenue for the entire fiscal year in North America decreased by 18.2% to JPY3,908.2b due to decreased unit sales of automobiles.

Operating income totaled JPY236.3b for the year, a significant increase of 196.6% from the last fiscal year as a result of decreased SG&A expenses related to provisions for credit losses and lease residual value fluctuations.

Revenue for the quarter totaled JPY1,004b, an increase of 46.7% from the corresponding period last year.

This increase in revenue was mainly due to increase sales of automobiles that more than offset negative currency translation effect.

Operating income for the fourth quarter was JPY70.7b, increased by JPY178.2b from the fourth quarter last year.

Increased revenue and less fixed cost per unit as a result of increased production mainly contributed to this increase in operating income.

Operating margin for the quarter was 7%.

Now I would like to discuss more about the US automobile market situation during the quarter.

During January to March quarter, we saw industry sales surpassing last year's sales level for five months in a row from November last year.

Sales on the adjusted annual rate now hovering around 11.5m units level, a still depressed level if we take into account of the replacement demand of the US total fleet for the automobiles.

Corporate fleet sales seemed to come back from the retrenched level of last year but the true recovery of the market has to come from the retail side and in this regard last March sales was a positive sign but individual customers who are coming to the dealers during the spring marketing season.

Regarding American Honda sales during the quarter, American Honda was able to show year over year double digit growth in February and March sales.

In March for example, Honda Accord, Honda Odyssey were both more than 20% growth.

Honda Pilot and Acura MDX were both more than 40% growth.

This high end model mix contributing the profitability of American Honda.

Looking out to calendar year 2010, we target unit sales of 1.248m, a growth of 8% over last year, with the assumption of US industry demand to be about 11.3m units.

We expect the market getting even more competitive in the passenger car segment with the new model introductions and heavy marketing campaign from competitors.

However, Honda will continue to refresh its model line-up and keeping incentive levels in check so as not to degrade the residual value of the customer's investment into the purchased vehicles.

Before Honda will do the full model change of the Civic within one year or so, it will have a launch of compact hybrid support model Honda CR-Z in the summer and Honda Odyssey will go through a full model change in autumn 2010.

On Acura's side, this year again it will add a new model, TSX Sport Wagon in its line-up.

On the production side, during the January to March quarter of 2010, North American factory produced about 57% more than the last year of destocking adjustment quarter and about 13% less than the 2008 January to March level.

With the unit sales expected to further grow this year, North American factory continue to produce more vehicle to meet the demand recovery and reach closer to the full capacity level as soon as possible.

As for Honda's business performance for the period in Europe, please turn to the slide 26.

Revenue for the fiscal year amounted to be JPY825.4b, also decreased by 35.5% from the last fiscal year.

Operating loss for the year was JPY10.8b.

Revenue for the quarter amounted to JPY208.1b, decreased by 21.2% from the fourth quarter last year mainly as a result of decreased unit sales of automobiles that more than offset positive currency translation effect.

Operating loss for the quarter was JPY7.6b, an improvement of JPY2.8b from the fourth quarter last year.

Although revenue decreased, reduction in SG&A expenses and less fixed cost per vehicle as a result of increased production contributed to this profit improvement.

Operating margin for the quarter was minus 3.7%.

Automobile market in Western Europe expanded due to scrappage incentives programs in several countries.

However, due to several reasons such as severe competition in Honda's model line-up, our sales dropped compared to the fourth quarter last year.

In Eastern European countries, demand significantly declined and so did Honda's unit sales.

The same trend continued under the fiscal year end.

In Asia, please have a look at slide 27.

Revenue for the year decreased by 5.6% from the previous fiscal year to JPY1,518.5b, although sales of motorcycles increased.

Operating income for the year ended March 31, 2010 totaled JPY113b, 9.1% of increase mainly due to the decreased SG&A expenses and increased revenue.

Revenue for the quarter amounted to JPY429.1b an increase of 28.2% from the corresponding period last year.

Increased sales of automobiles and motorcycles and positive currency translation effect were the main factors that contributed to this increase.

Operating income for the quarter totaled JPY30b, significantly increased by 566.1% primarily due to increased revenue and favorable currency effect.

Operating margin for the quarter was 7%.

Demand continued to expand in Southeast Asian countries such as in Thailand, Indonesia and India.

Government support for new vehicle purchases in India, Taiwan, Vietnam and Korea also boosted automobile demand in Asia.

Amid these circumstances, Honda sales of City in Thailand, Malaysia and India was quite favorable.

Motorcycle demand in Southeast Asian countries remained quite strong for the quarter.

Demand showed more than double digit growth in Thailand, Indonesia, Vietnam and India for the quarter.

Honda's unit sales increased accordingly with the pace of increase more than that of the market expansion in Thailand and Vietnam.

In other regions, that include South America, the Middle East, Africa, and Oceania, please turn to the slide 28.

Revenue for the fiscal year totaled JPY896.4b, decreased by 21.7% from the last fiscal year due to decrease in sales of motorcycles and automobiles.

Operating income of the entire fiscal year decreased by 66.1% to JPY45.8b as a result of decreased revenue and negative currency effect.

Revenue for the quarter amounted to JPY251.3b increased by 28.1% from the corresponding quarter last year, mainly due to positive currency translation effect.

Operating income for the quarter totaled JPY18.9b, significantly increased by 134.5% mainly due to positive currency effect and decreased SG&A expenses.

Operating margin for the quarter was 7.5%.

In Brazil, where we have three months luck when consolidating the quarter period, industrialized products tax cut plan ended in March 2010 and rush demand boosted the automobile demand.

Honda's unit sales of (inaudible) Fit model was quite favorable for the quarter.

Automobile market in Brazil is expected to grow in 2010.

Motorcycle market has recovered in Brazil due to economic recovery and improvement of unemployment ratio.

Demand from January to March this year showed growth compared to the same period last year with the recovery of credit availability.

Honda sales has also been quite strong year-on-year basis with newly launched models in 2009 such as CC150, CB300R, and NXR150.

Automobile unit sales declined in the Middle East and Africa, sales in Australia has remained weak for the quarter.

With regard to the income in equity of affiliated companies, please see the slide 30.

Income in the equity of affiliated companies for the quarter was JPY23.8b up by JPY21.1b from the same period last year.

Out of this, JPY20.2b was contributed by Asian affiliated companies.

For your reference, we put a chart that shows operating income and net income of Asian-affiliated companies, please see the slide 31.

During the quarter period, operating profit and net profit of Asian affiliated companies were JPY75.6b and JPY61.4b respectively.

Major contributing companies are listed in the bottom of the slide.

With this, I will hand the microphone to Mr.

Ito.

Thank you.

Thank you, Ms.

Hatori.

With regard to CapEx for the quarter, please see the slide 33.

Due mainly to decrease in the Automobile CapEx, total CapEx for the quarter became JPY329.7b.

Now, I would like to switch gear to the Company's earnings guidance for the fiscal year ending March 2011.

Please see the page 36.

Net income would be JPY340b, an increase of JPY71.6b from last year and up 26.7% from last year.

Earnings per share would be JPY187.37, an increase of JPY39.46 from last year.

Revenue would be JPY9,340b, an increase of JPY760.8b from last year.

Operating income would be JPY400b, an increase of JPY36.2b from last year.

Income before income tax would be JPY410b, an increase of JPY73.8b from last year.

Income in equity of affiliates will be JPY95b.

We estimate the currencies for the fiscal year would be JPY90 against the US dollar and JPY120 against the euro.

Please see the page 35.

With regard to unit sales guidance for the fiscal year ending March 2011, we expect demand for motorcycle in Asian countries to grow centered in India and Indonesia.

Demand in other regions centered in Brazil is expected to recover in this year.

We forecast Motorcycle unit sales will be 10.375m units.

Total Automobile unit sales will grow to 3.615m units due mainly to increased sales in North America, Asia and other regions.

Sales of Power Products would be 4.870m units, an increase of 126,000 units from last year.

In terms of variance of year on year operating profit, please see the slide 37.

In gross profit, we expect that gross of net sales will bring a positive JPY198.9b impact.

And the cost reduction efforts will stay as a positive driver for this fiscal year, an increase of JPY6b from last year.

However, we expect SG&A expenses will increase by JPY87b due mainly to growth of sales and R&D expenses will increase by JPY36.7b for the enhancement of environmental friendly technology development.

We estimate the ForEx impact would be negative JPY45b.

As for CapEx, depreciation and R&D, please see the slide 38.

CapEx for the year would be JPY380b, up JPY50.2b from last year.

Depreciation would be JPY350b.

With regard to the cash dividend, please see the slide six.

The Board announced to propose a year end cash dividend of JPY12 which is up JPY2 from the Company's (inaudible) in February.

The Company announced that cash dividend for the fiscal year ending March 2011 would be JPY48, an increase of JPY10 from last year.

Okay, that's about this.

This concludes Honda's fiscal fourth quarter earnings result audio presentation.

Thank you again for listening to our web program.

This is Ito, Honda Investor Relations, and have a wonderful day.